Q

M
B
M
0
6
1
1
The Association of Business Executives
Diploma
1.14 QMBM
Quantitative Methods for
Business and Management
Afternoon 7 June 2011
1 Time allowed: 3 hours.
2 Answer any FOUR questions.
3 All questions carry 25 marks. Marks for subdivisions of questions are shown in brackets.
4 No books, dictionaries, notes or any other written materials are allowed in this
examination.
5 Calculators, including scientic calculators, are allowed providing they are not
programmable and cannot store or recall information. Electronic dictionaries and
personal organisers are NOT allowed. All workings should be shown.
6 Candidates who break ABE regulations, or commit any misconduct, will be disqualied
from the examinations.
7 A Formulae sheet and tables for the Normal and Chi-Squared distributions are provided
on pages 10-14.
8 Question papers must not be removed from the Examination Hall.
QMBM0611 ABE 2011 H/500/3699
QMBM0611 2
Answer any FOUR questions
Q1 (a) Describe three properties of the standard normal distribution.
(5 marks)
(b) (i) Find the area under the standard normal curve between z
1
= 1.2 and z
2
= 1.5
(ii) If the area under the curve to the left of z
3
is 0.975, nd the value of z
3
(5 marks)
(c) The life of a car component is normally distributed with a mean of 25,000 hours and
a standard deviation of 1,000 hours. Find the probability that a randomly selected
component will last:
(i) more than 26,000 hours
(ii) less than 24,500 hours
(iii) between 24,000 and 26,000 hours.
(10 marks)
(d) If 93.32% of all the car components in part (c) last for less than x hours, nd the value
of x.
(5 marks)
(Total 25 marks)
QMBM0611 3 [Turn over
Q2 The annual salaries earned by 30 randomly-selected mathematics teachers in a city (to the
nearest 000) are as follows:
20 25 26 30 32 40
22 25 26 30 32 48
22 25 26 30 36 52
23 26 28 30 36 60
25 26 28 32 38 61
(a) Find the arithmetic mean, median and mode.
[You are not required to form a frequency distribution]
(5 marks)
(b) Calculate the standard deviation.
(5 marks)
(c) Calculate the coefcient of skewness and comment on the result.
(5 marks)
(d) Calculate 90 and 95 per cent condence intervals for the population mean.
(5 marks)
(e) Test the claim made by a school-teachers association that mathematics teachers in
the city earn on average 35,000 per year. Use a 5% level of signicance.
(5 marks)
(Total 25 marks)
QMBM0611 4
Q3 In the following set of data, y represents the number of annual claims for ood damage
received by an insurance company (in thousands) and x represents the annual rainfall
(in centimetres) over a period of 10 years.
y
(000s)
x
(cm)
2.0 210
0.5 150
0.2 120
4.0 450
4.0 400
2.5 200
2.0 210
4.0 430
0.1 190
4.0 400
(a) Plot the data on a scatter diagram and comment on the likely relationship between
x and y.
(5 marks)
(b) Find the standard deviations of x and y.
(5 marks)
(c) Find the equation of the least-squares regression line, assuming that insurance claims
for ood damage depend on the amount of rainfall.
(5 marks)
(d) Calculate the correlation coefcient and comment on the result.
(5 marks)
(e) Use your results to predict the number of ood damage claims in years with 50cm of
rainfall and in years with 250cm of rainfall. Comment on the likely accuracy of your
predictions.
(5 marks)
(Total 25 marks)
QMBM0611 5 [Turn over
Q4 The numbers of visitors to a garden centre (in 000s) are shown quarterly over three years in
the following table:
Year Quarter Time (t)
Visitors (y)
(000s)
2008 1 1 12
2 2 24
3 3 28
4 4 10
2009 1 5 14
2 6 28
3 7 32
4 8 12
2010 1 9 18
2 10 30
3 11 36
4 12 16
(a) Calculate a centred four-point moving average trend.
(5 marks)
(b) Regress the number of visitors (y) on time (t) to nd the equation of the linear trend
line. Use this equation to nd a trend value for each quarter for all three years.
(7 marks)
(c) Use the additive model and the moving average trend estimated in part (a) to
calculate seasonal factors for each quarter (to one decimal place).
(5 marks)
(d) Use the additive model and the linear trend estimated in part (b) to calculate seasonal
factors for each quarter (to one decimal place).
(5 marks)
(e) Account for the differences between the two sets of seasonal factors calculated in
parts (c) and (d).
(3 marks)
(Total 25 marks)
QMBM0611 6
Q5 (a) Explain the meaning of a signicance test and give one example to show how a
signicance test could be used in business.
(5 marks)
(b) A manufacturing company claims that no more than 2% of its products are defective. A
random sample of 1,000 products is taken and 24 are found to be defective. To test the
companys claim at the 5% level of signicance, you are required to:
(i) State the null and alternative hypotheses and state the critical z-value.
(3 marks)
(ii) Calculate the test statistic and draw an appropriate conclusion.
(7 marks)
(c) Companies A and B produce identical machine components. A random sample of
1,000 components is taken from Company A and 17 are found to be defective. A
random sample of 800 components is taken from Company B and 16 are found to be
defective. To test whether there is a signicant difference between the proportions of
defective components produced by the two companies, you are required to:
(i) State the null and alternative hypotheses and determine the critical value of z for
a test at the 1% level of signicance.
(3 marks)
(ii) Calculate the test statistic and draw an appropriate conclusion.
(7 marks)
(Total 25 marks)
QMBM0611 7 [Turn over
Q6 (a) The owners of a garden centre would like to test whether the age structure of its
customers is the same as the age structure of the population in the country as a whole.
The following data were collected:
Age groups
Garden centre
percentages
Country
percentages
Under 20 15 30
20 under 40 20 28
40 under 60 33 22
Over 60 32 20
To conduct a goodness-of-t test at the 5% level of signicance, you are required to:
(i) State appropriate null and alternative hypotheses and state the critical chi-
squared value.
(5 marks)
(ii) Calculate the chi-squared test statistic and draw an appropriate conclusion.
(5 marks)
(b) One hundred and twenty randomly-selected consumers were categorised according to
their age (under or over 40) and whether they would purchase a new product (yes or
no). The results are summarised below:
Would you purchase the new product?
Age Yes No
Under 40 30 30
Over 40 10 50
To conduct a test of independence between age and the decision whether to buy the
new product at the 5% level of signicance, you are required to:
(i) State the null and alternative hypotheses and nd the chi-squared critical value.
(5 marks)
(ii) Calculate the expected frequencies in each cell of the table above, on the
assumption of independence.
(5 marks)
(iii) Calculate the chi-squared test statistic and draw an appropriate conclusion.
(5 marks)
(Total 25 marks)
QMBM0611 8
Q7 (a) Outline the limitations of break-even analysis as a method of business decision-
making.
(5 marks)
(b) Consider a small rm that manufactures luxury armchairs with a projected selling
price of 1,500. The rm has xed costs of 40,000 per month and variable costs per
armchair are 500.
(i) Find the rms break-even level of monthly output.
(5 marks)
(ii) If the rm plans to sell 55 armchairs per month, calculate its expected monthly
prot.
(5 marks)
(iii) If the rm is making a loss of 5,000 per month, calculate the increase in
production that would be required to make a prot of 5,000.
(5 marks)
(iv) If xed costs rise to 60,000 per month and variable costs per armchair rise to
600, calculate the price that the rm should charge if it sells 50 armchairs and
wishes to make a prot of 5,000 per month.
(5 marks)
(Total 25 marks)
QMBM0611 9 [Turn over
Q8 (a) Distinguish between probability and non-probability sampling.
(5 marks)
(b) Explain how you would collect the following samples, stating in each case whether it is
a probability or non-probability sample:
(i) Quota sample
(ii) Simple random sample
(iii) Stratied sample
(iv) Systematic sample
(v) Cluster sample
(10 marks)
(c) To investigate the average amount spent by households each year on computing and
related accessories, a random sample of households is to be selected.
(i) If the standard deviation is estimated to be 100, determine the sample size
that would be required to estimate the population mean to within 10 with 95%
condence.
(5 marks)
(ii) If the standard deviation is estimated to be 200, determine the sample size
that would be required to estimate the population mean to within 10 with 99%
condence.
(5 marks)
(Total 25 marks)
End of Question Paper
QMBM0611 10
Geometric mean of ungrouped data:
(where represents the product of)
GM x
n
=
QMBM0609 9 [Turn over
FORMULAE FOR QUANTITATIVE METHODS
Mean of ungrouped data:
Mean of grouped data:
Median of grouped data:
(where L is the lower boundary of the median class, F is the cumulative frequency
up to the median class, f is the frequency of the median class and i is the width of
the median class)
Mode of grouped data:
(where L is the lower boundary of the modal class, f
m
is the frequency of the modal
class, f
m1
is the frequency of the pre-modal class, f
m+1
is the frequency of the post-
modal class and i is the width of the modal class)
Standard deviation of ungrouped data:
Standard deviation of grouped data:
Coefficient of skewness:
x
x
n
=

x
fx
n
=

=

f x x
f
fx
f
x
( )

2 2
2
=

=
( )

x x
n
x
n
x
2 2
2
Sk
x x
s
x s =
3(

(where is the median and is the standard deviation)

Median L
n
F
f
i = +

Mode L
f f
f f f
i
m m
m m m
= +

1
1 1
2
QMBM0609 9 [Turn over
FORMULAE FOR QUANTITATIVE METHODS
Mean of ungrouped data:
Mean of grouped data:
Median of grouped data:
(where L is the lower boundary of the median class, F is the cumulative frequency
up to the median class, f is the frequency of the median class and i is the width of
the median class)
Mode of grouped data:
(where L is the lower boundary of the modal class, f
m
is the frequency of the modal
class, f
m1
is the frequency of the pre-modal class, f
m+1
is the frequency of the post-
modal class and i is the width of the modal class)
Standard deviation of ungrouped data:
Standard deviation of grouped data:
Coefficient of skewness:
x
x
n
=

x
fx
n
=

=

f x x
f
fx
f
x
( )

2 2
2
=

=
( )

x x
n
x
n
x
2 2
2
Sk
x x
s
x s =
3(

(where is the median and is the standard deviation)

Median L
n
F
f
i = +

Mode L
f f
f f f
i
m m
m m m
= +

1
1 1
2
FORMULAE
QMBM0611 11 [Turn over QMBM0609 10
Regression:
Pearson correlation:
Spearmans rank correlation:
Binomial distribution:
Poisson distribution:
Standard normal distribution:
Confidence interval for a mean:
,

y a bx
b
n xy x y
n x x
a y bx
= +
=

( )
=
2 2
R
n xy x y
n x x n y y
R b
x
y
=

( )
( )
( )
( )
=

2 2 2
2

Laspeyres price index

p q
p q
price index Paasche
p q
p q
=

1 0
0 0
1 1
0 1
100
100
z
x
=

= x z
n
R
d
n n
=

( )
1
6
1
2
2

P x C p q
n x
x n x
( )

=
P x
e
x
x
( )
!

=


Coefficient of skewness:
Sk
x x
s
x s =
3(

)

(where is the median and is the standard deviation)

QMBM0611 12 QMBM0609 11 [Turn over
Confidence interval for a proportion:
Test statistic for a single mean:
Test statistic for a difference between means:
Test statistic for a single proportion:
Test statistic for a difference between proportions:
Chi-squared test statistic:
= p z
pq
n
z
x
n
=

0
z
x x
n n
=
+
1 2
1
2
1
2
2
2

z
p
n
=

( )

0
0 0
1

2
2
=
( )

O E
E

z
p p
pq
n n
where p
n p n p
n n
and q p =
+

=
+
+
=
1 2
1 2
1 1 2 2
1 2
1 1
1

,
QMBM0611 13 [Turn over QMBM0609 12
Areas in the right-hand tail of the Normal distribution
z .00 .01 . 02 .03 . 04 .05 . 06 .07 . 08 .09
0. 0 . 5000 .4960 .4920 .4880 .4840 .4801 .4761 .4721 .4681 .4641
0. 1 . 4602 .4562 .4522 .4483 .4443 .4404 .4364 .4325 .4286 .4247
0. 2 . 4207 .4168 .4129 .4090 .4052 .4013 .3974 .3936 .3897 .3859
0. 3 . 3821 .3783 .3745 .3707 .3669 .3632 .3594 .3557 .3520 .3483
0. 4 . 3446 .3409 .3372 .3336 .3300 .3264 .3228 .3192 .3156 .3121
0. 5 . 3085 .3050 .3015 .2981 .2946 .2912 .2877 .2843 .2810 .2776
0. 6 . 2743 .2709 .2676 .2643 .2611 .2578 .2546 .2514 .2483 .2451
0. 7 . 2420 .2389 .2358 .2327 .2296 .2266 .2236 .2206 .2177 .2148
0. 8 . 2119 .2090 .2061 .2033 .2005 .1977 .1949 .1922 .1894 .1867
0. 9 . 1841 .1814 .1788 .1762 .1736 .1711 .1685 .1660 .1635 .1611
1. 0 . 1587 .1562 .1539 .1515 .1492 .1496 .1446 .1423 .1401 .1379
1. 1 . 1357 .1335 .1314 .1292 .1271 .1251 .1230 .1210 .1190 .1170
1. 2 . 1151 .1132 .1112 .1093 .1075 .1056 .1038 .1020 .1003 .0985
1. 3 . 0968 .0951 .0934 .0918 .0901 .0885 .0869 .0853 .0838 .0823
1. 4 . 0808 .0793 .0778 .0764 .0749 .0735 .0721 .0708 .0694 .0681
1. 5 . 0668 .0655 .0643 .0630 .0618 .0606 .0594 .0582 .0571 .0559
1. 6 . 0548 .0537 .0526 .0516 .0505 .0495 .0485 .0475 .0465 .0455
1. 7 . 0446 .0436 .0427 .0418 .0409 .0401 .0392 .0384 .0375 .0367
1. 8 . 0359 .0351 .0344 .0336 .0329 .0322 .0314 .0307 .0301 .0294
1. 9 . 0287 .0281 .0274 .0268 .0262 .0256 .0250 .0244 .0239 .0233
2.0 .02275 .02222 .02169 .02118 .02068 .02018 .01970 .01923 .01876 .01831
2.1 .01786 .01743 .01700 .01659 .01618 .01578 .01539 .01500 .01463 .01426
2.2 .01390 .01355 .01321 .01287 .01255 .01222 .01191 .01160 .01130 .01101
2.3 .01072 .01044 .01017 .00990 .00964 .00939 .00914 .00889 .00866 .00842
2.4 .00820 .00798 .00776 .00755 .00734 .00714 .00695 .00676 .00657 .00639
2.5 .00621 .00604 .00587 .00570 .00554 .00539 .00523 .00508 .00494 .00480
2.6 .00466 .00453 .00440 .00427 .00415 .00402 .00391 .00379 .00368 .00357
2.7 .00347 .00336 .00326 .00317 .00307 .00298 .00289 .00280 .00272 .00264
2.8 .00256 .00248 .00240 .00233 .00226 .00219 .00212 .00205 .00199 .00193
2.9 .00187 .00181 .00175 .00169 .00164 .00159 .00154 .00149 .00144 .00139
3.0 .00135
3.1 .00097
3.2 .00069
3.3 .00048
3.4 .00034
3.5 .00023
3.6 .00016
3.7 .00011
3.8 .00007
3.9 .00005
4.0 .00003
O Z
Area in the table
z
QMBM0611 14 QMBM0609 13 [Turn over
Chi-Squared Critical Values
p value
df 0.25 0.20 0.15 0.10 0.05 0.025 0.02 0.01 0.005 0.0025 0.001 0.0005
1
1.32 1.64 2.07 2.71 3.84 5.02 5.41 6.63 7.88 9.14 10.83 12.12
2
2.77 3.22 3.79 4.61 5.99 7.38 7.82 9.21 10.60 11.98 13.82 15.20
3
4.11 4.64 5.32 6.25 7.81 9.35 9.84 11.34 12.84 14.32 16.27 17.73
4
5.39 5.59 6.74 7.78 9.49 11.14 11.67 13.23 14.86 16.42 18.47 20.00
5
6.63 7.29 8.12 9.24 11.07 12.83 13.33 15.09 16.75 18.39 20.51 22.11
6
7.84 8.56 9.45 10.64 12.53 14.45 15.03 16.81 13.55 20.25 22.46 24.10
7
9.04 9.80 10.75 12.02 14.07 16.01 16.62 18.48 20.28 22.04 24.32 26.02
8
10.22 11.03 12.03 13.36 15.51 17.53 18.17 20.09 21.95 23.77 26.12 27.87
9
11.39 12.24 13.29 14.68 16.92 19.02 19.63 21.67 23.59 25.46 27.83 29.67
10
12.55 13.44 14.53 15.99 18.31 20.48 21.16 23.21 25.19 27.11 29.59 31.42
11
13.70 14.63 15.77 17.29 19.68 21.92 22.62 24.72 26.76 28.73 31.26 33.14
12
14.85 15.81 16.99 18.55 21.03 23.34 24.05 26.22 28.30 30.32 32.91 34.82
13
15.93 16.98 18.90 19.81 22.36 24.74 25.47 27.69 29.82 31.88 34.53 36.48
14
17.12 18.15 19.40 21.06 23.68 26.12 26.87 29.14 31.32 33.43 36.12 38.11
15
18.25 19.31 20.60 22.31 25.00 27.49 28.26 30.58 32.80 34.95 37.70 39.72
16
19.37 20.47 21.79 23.54 26.30 28.85 29.63 32.00 34.27 36.46 39.25 41.31
17
20.49 21.61 22.98 24.77 27.59 30.19 31.00 33.41 35.72 37.95 40.79 42.88
18
21.60 22.76 24.16 25.99 28.87 31.53 32.35 34.81 37.16 39.42 42.31 44.43
19
22.72 23.90 25.33 27.20 30.14 32.85 33.69 36.19 38.58 40.88 43.82 45.97
20
23.83 25.04 26.50 28.41 31.41 34.17 35.02 37.57 40.00 42.34 45.31 47.50
21
24.93 26.17 27.66 29.62 32.67 35.48 36.34 38.93 41.40 43.78 46.80 49.01
22
26.04 27.30 28.82 30.81 33.92 36.78 37.66 40.29 42.80 45.20 48.27 50.51
23
27.14 28.43 29.98 32.01 35.17 38.08 38.97 41.64 44.18 46.62 49.73 52.00
24
28.24 29.55 31.13 33.20 36.42 39.36 40.27 42.98 45.56 48.03 51.18 53.48
25
29.34 30.68 32.28 34.38 37.65 40.65 41.57 44.31 46.93 49.44 52.62 54.95
26
30.43 31.79 33.43 35.56 38.89 41.92 42.86 45.64 48.29 50.83 54.05 56.41
27
31.53 32.91 34.57 36.74 40.11 43.19 44.14 46.96 49.64 52.22 55.48 57.86
28
32.62 34.03 35.71 37.92 41.34 44.46 45.42 48.28 50.99 53.59 56.89 59.30
29
33.71 35.14 36.85 39.09 42.56 45.72 46.69 49.59 52.34 54.97 58.30 60.73
30
34.80 36.25 37.99 40.26 43.77 46.98 47.96 50.89 53.67 56.33 59.70 62.16
40
45.62 47.27 49.24 51.81 55.76 59.34 60.44 63.69 66.77 69.70 73.40 76.09
50
56.33 53.16 60.35 63.17 67.50 71.42 72.61 76.15 79.49 82.66 86.66 89.56
60
66.98 68.97 71.34 74.40 79.08 83.30 84.58 88.38 91.95 95.34 99.61 102.7
80
88.13 90.41 93.11 96.58 101.9 106.6 108.1 112.3 116.3 120.1 124.8 128.3
100
109.1 111.7 114.7 118.5 124.3 129.6 131.1 135.8 140.2 144.3 149.4 153.2
BLANK PAGE
QMBM0611 15 [Turn over
QMBM0611 16 11111-114-1

The Association of Business Executives
Diploma



Quantitative Methods for
Business and Management
June 2011
Suggested Answers




1.14 QMBM

Q1 (a) The standard normal distribution is symmetrical and
bell-shaped with a mean of zero and a standard deviation
equal to one.


(b) (i) Area between z
1
= 1.2 and z
2
= 1. 5 is:
0.1151 - 0.0668 = 0.0483


(ii) The area to the right of z
3
is 0.025.
So z
3
must equal 1.96.


(c) (i) z = (26000 - 25000)/1000 = 1

P(more than 26000) = 0.1587


(ii) z = (24500 - 25000)/1000 = -0.5

P(less than 24500) = 0.3085


(iii) z
1
= (24000 25000)/1000 = -1
z
2
= (26000 25000)/1000 = 1

P(between 24000 and 26000)
= 1 (0.1587 + 0.1587) = 0.6826


(d) 1 0.9332 = 0.0668 is the area to the right of z = 1.5. So:

1.5 = (x 25000)/1000 x = 26,500





Q2 (a) Mean = 960 / 30 = 32
Median = 29
Mode = 26


(b) Standard deviation (n) = 43 . 10 32
30
33982
2
=


Standard deviation (n 1) = 10.61

[Either answer is acceptable]


(c) Sk = 86 . 0
43 . 10
) 29 32 ( 3
=

[0.85, which results if 10.61 is used as the standard deviation, is also
acceptable]
There is a moderate degree of positive skew (i.e. a longer tail to the
right).


(d) 90% confidence interval is:

32 (1.645 10.61/\30) = 32 3.19

95% confidence interval is:

32 (1.96 10.61/\30) = 32 3.80



(e) H
0
: 35 =
H
1
: 35 =

At the 5% level, the critical value of z in a two-tailed test is 1.96.

55 . 1
30
61 . 10
35 32
=

= z

Since -1.55 > -1.96, the null hypothesis cannot be rejected. There is
not sufficient evidence to reject the claim that the teachers average
annual salary is 35,000.
3 (a)



There appears to be a moderate or high degree of positive correlation.

(b)
558 . 1 33 . 2
10
55 . 78
178 . 121 276
10
908600
2
2
= =
= =
y
x
o
o

(127.73 and 1.64, obtained using the (n-1) formula, are also
acceptable)

(c)
954 . 0 ) 276 0119 . 0 ( 33 . 2
0119 . 0
2760 ) 908600 10 (
) 2760 3 . 23 ( ) 8178 10 (
2
= =
=


=
a
b


So the equation is: y = -0.95 + 0.012x




(d) 926 . 0
558 . 1
178 . 121
0119 . 0 = = R

This represents a high degree of positive correlation.



(e) x = 50, 36 . 0 ) 50 0119 . 0 ( 954 . 0 = + = y

x = 250, 02 . 2 ) 250 0119 . 0 ( 954 . 0 = + = y

So we predict the number of fire damage claims to be negative when
x = 50 and 2,020 when x = 250. The first prediction cannot be accurate as
the number of claims cannot be negative. The sample size is small and 50
is outside the range of the data. The second prediction is likely to be more
reliable, as 250 is within the range of the data. Also, the correlation
coefficient is high. The regression equation fails to take into account the
influence of other factors (such as the intensity of the rainfall).




4. (a) The centred moving averages are:

18.75, 19.5, 20.5, 21.25, 22, 22.75, 23.5, 24.5


(b) To find the linear trend:

03 . 17 ) 5 . 6 7133 . 0 ( 67 . 21
7133 . 0
78 ) 650 12 (
) 260 78 ( ) 1792 12 (
2
= =
=


=
a
b


The equation of the linear trend is: y = 17.03 + 0.7133x

And the linear trend values are:

17.74, 18.46, 19.17, 19.88, 20.60, 21.31, 22.02, 22.74, 23.45,
24.16, 24.88, 25.59


(c) Using the moving average trend:

Q1 Q2 Q3 Q4
9.25 -9.5
-6.5 6.75 10 -10.75
-5.5 5.5
-6 6.125 9.625 -10.125
-5.90625 6.21875 9.71875 -10.03125
(adjusted to sum to zero)


The seasonal variations to one decimal place are:
-5.9, 6.2, 9.7, -10.0.

(d) Using the linear trend:






The seasonal variations to one decimal place are:
-5.9, 6.0, 10.0, -10.1


(e) The two sets of moving averages are very similar, the absolute differences
being 0, 0.2, 0.3 and 0.1 only. There are two reasons for the differences. First,
the linear trend assumes that the trend is a straight line (fitted by least-squares
regression), while the moving average method does not fit a straight line.
Secondly, the linear trend uses the full set of data, while the centred four-point
moving average method necessarily loses four observations from the data.

Q1 Q2 Q3 Q4
-5.74359 5.543124 8.829837 -9.88345
-6.59674 6.689977 9.97669 -10.7366
-5.44988 5.83683 11.12354 -9.58974
-5.93007 6.02331 9.97669 -10.0699
5. (a) A significance test uses sample data to test hypotheses about a
population. The test checks whether there is a significant difference
between the sample results and the claimed population value. If the
significance level were set at 5%, say, a null hypothesis about a population
would be rejected if the sample value were in the range of values that
would only be expected to occur in 5% of samples (if the claimed
population value were true). In business, a quality control inspector could
use significance tests to check manufacturers claims about the average
number of defective goods produced.


(b) (i) H
0
: % 2 = t
H
1
: % 2 > t

This is a one-tailed test, so the critical value at
the 5% level is 1.645.


(ii) p = 2.4 %
And therefore:

90 . 0
1000
98 2
2 4 . 2
=

= z


We cannot reject the null hypothesis at the 5% level.
The evidence supports the manufacturers claim.



(c) (i) H
0
: t
A
= t
B

H
1
:
B A
t t =

(where the subscript A refers to Company A and the subscript B
refers to Company B).

This is a two-tailed test, so the critical value at the 1% level is
2.576.

(ii) p
1
= 1.7%
p
2
= 2%

01833 . 0
800 1000
) 02 . 0 800 ( ) 017 . 0 1000 (
=
+
+
= p (or 1.833%)

And therefore:

47 . 0
800
1
1000
1
167 . 98 833 . 1
2 7 . 1
=
|
.
|

\
|
+

= z


We cannot reject the null hypothesis at the 1% level. The evidence
suggests that there is no significant difference between the two
companies.






6. (a) (i) H
0
: The garden centre age structure is the same as the
countrys age structure.
H
1
: The garden centre age structure is not the same as the
countrys age structure.

With a 5% level of significance and 3 degrees of freedom,
the critical value of chi-squared is 7.81.


(ii) The chi-squared test statistic is calculated as follows:











Since 22.49 > 7.81, we reject the null hypothesis. There is
evidence of a significant difference between the two age
structures.


(b) (i) H
0
: Age and the decision whether or not to buy the
product are independent.
H
1
: there is a link between age and the decision whether or
not to buy the product.

With a 5% level of significance and 1 degree of freedom,
the critical value of chi-squared is 3.84.


(ii) The expected frequencies are:

(60/120) 40 = 20
(60/120) 80 = 40
(60/120) 40 = 20
(60/120) 80 = 40






O E ((O-E)
2
/E)
15 30 7.5
20 28 2.29
33 22 5.5
32 20 7.2
22.49


(iii) The chi-squared test statistic is calculated as follows:










(An answer of 13.54, obtained when Yates correction is applied,
is also acceptable)

Since 15 > 3.84, we can reject the null hypothesis. There is
evidence of a link between age and the decision to buy the new
product.


O E ((O-E)
2
/E)
30 20 5
30 40 2.5
10 20 5
50 40 2.5
15.00


7. (a) In simple break-even analysis, it is assumed that a firm produces a
single product with a given market price. In practice, firms often produce
several different products and would normally require a price fall to enable
them to sell extra units. The analysis is also more complicated in practice since
cost functions are likely to be non-linear.


(b) (i) TR = 1500Q
TC = 40,000 + 500Q

For break-even, 1500Q - 500Q - 40000 = 0

Q = 40 armchairs


(ii) Profit = 1000Q 40000
= (1000 55) 40000
= 15,000



(iii) For loss of 5,000:
1000Q 40000 = -5000
1000Q = 35000
Q = 35 armchairs

For profit of 5,000:
1000Q 40000 = 5000
1000Q = 45000
Q = 45 armchairs

An increase in production of 10 armchairs is required.


(iv) With the new costs, if 50 armchairs are produced and profit is
5,000:

50P - 60000 - (600 50) = 5000
50P = 95000
P = 1,900


Q8 (a) In probability sampling, every item in the population has a known
chance of being selected as a sample member. Examples include random
sampling and stratified sampling. In non-probability sampling, the probability
that any item in the population will be selected for the sample cannot be
determined. Examples include quota sampling and judgmental sampling.


(b) (i) A quota sample is a non-probability sample, in which interviewers
are allocated a particular area, together with the number and type of
sampling units required. This number is called a quota and is usually
broken down by gender, age groups or social class. Each interviewer is
responsible for achieving the allocated quota.

(ii) A simple random sample is a probability sample, collected in such a
way that every member of the population has an equal chance of being
selected.

(iii) A stratified sample is a probability sample. To collect a stratified
sample, the sampling frame is divided into known strata and random
samples are then taken from each stratum in the same proportions as in
the population.

(iv) A systematic sample is a probability sample. It can be collected,
first, by choosing an item from the sampling frame at random, and
then selecting every nth item thereafter, where n is chosen to ensure
that the required sample size is achieved.

(v) A cluster sample is a probability sample. The population is divided
into clusters. Then clusters are randomly selected and a sample is
collected at random from each cluster.


(c) (i) The required sample size can be found by solving the
following equation for n:
10
100
96 . 1 =
n

This gives n = 384.16, so a sample of 385 should be taken.

(ii) The required sample size can be found by solving the
following equation for n:
10
200
576 . 2 =
n

This gives n = 2654.31, so a sample of 2,655 should be taken.